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Another day, another blog that I probably won’t update as often as I intend…

So, I’m about to start an MBA at Oxford University’s Saïd Buisness School (SBS). I’ll talk a little bit about why I’m doing the course, and what I plan to write about here in a later post. First, as with many great and important things in life, I’d like to start with a little bit of a rant.

Warning: this is a lengthy post – they won’t all be like this – but it is quite representative of what I’m about to talk about here.

An MBA is generally quite expensive so if, like myself, you haven’t managed to save loads of money upfront, you might be considering applying for a bank loan to fund your MBA fees and living expenses. Unfortunately, thanks to the recent financial meltdown, your choices are limited for loans in the UK. SBS used to have an arrangement with Barclays bank, with a special MBA loan deal for students. Unfortunately this was withdrawn when the financial crisis hit. Fortunately, there is still one bank that will give loans to MBA students: NatWest – part of the once illustrious, Royal Bank of Scotland.

Surprisingly, there is very little information about the loan out there on the blogosphere. I thought some other heavily-debt-ridden student would have written about the application process, but apparently not. I am writing this post to fill the void. Hopefully with some Google magic, this post will come top for a search for “NatWest MBA loan” (HINT: give me some Google juice by linking to this post using the link text NatWest MBA loan).

So, I’m sure at some point on the MBA course we’ll discuss what happens to an industry when a monopoly emerges. Well, with only one bank giving a general MBA loan in the UK, that does represent somewhat of a monopoly, and my experience of the application process has been less than stellar.

Don’t get me wrong – I’m very grateful that the loan exists. You’re essentially getting a massive loan with no real security behind it other than your future post-MBA earning potential. The purpose of this post is really just to inform anyone who is planning to do an MBA and is thinking they will use the NatWest MBA loan to fund it.

On the face of it the loan is a pretty amazing offer: they will lend you up to 80% of your course fees and up to 2/3 of your pre-MBA gross salary. Wow! Now given that the average pre-MBA salary at SBS, is £41,000 (I wasn’t earning quite that much), and the course fees are £36,000 that means a fairly sizeable loan! You don’t have to make any payments during the course (of course interest starts accruing immediately) and at the end of the 12-month course you get a 3 month grace before you have to start making payments, just in case you have not managed to secure a job yet.

At the time the only savings I had were the 20% of fees (so sad!), so I took the above statement at face value and applied for the full 80% + 2/3. There’s no way I needed the full “2/3 pre-MBA gross salary” as living expenses, but I figured if I didn’t spend it, it would give me a good runway at the end of the course, and if I got a job with no problems I could just pay whatever was left over back as a lump sum.

The loan is actually “arranged” by the AMBA, and the process is that once you have an offer from a business school, you send your loan application to your business school, which then signs it and stamps it to confirm you indeed do have a place on their course. The application is then sent to AMBA, who wave a magic wand over the application to justify the 1% fee they add to your loan, and they then send it to NatWest.

Once your application is in the hands of NatWest, you will be contacted by a relationship manager from NatWest private banking. He will be your point of contact for the application process. From speaking with other students also applying for the loan, almost all of us had the same relationship manager.

Now in the original application form there is a section where you have to enter a very rudimentary budget covering bills, rent etc. This is where things get interesting…

My relationship manager contacted me to say that they would need to see a more detailed budget, outlining exactly how the whole living expenses cost would be spent. OK, fair enough – the budget in the application form was too basic to cover all costs, so I duly completed a more detailed budget and sent it to them. This was July 12th – plenty of time to get the loan confirmed before the deadline for fees payment (1st Sept), right?

On 22nd July I get a reply saying that there are some things on my budget that are not covered by the MBA loan: mortgage and bills for the flat I co-own with my brother in Scotland, gym membership, miscellaneous, leisure, and… wait for it… mobile phone! The email also contained the revealing line: “£2400 travel for treks and job search must be more specific, as this doesn’t fall into the basic costs/expenses and basic study equipment” (my emphasis).

We had now gone from talking about “2/3 of your pre-MBA gross salary” for living expenses to “basic costs/expenses”. They had basically used my budget against me! I don’t mind not having the Scotland flat bills covered – my brother has a lodger that covers my half of the mortgage. However, I find it quite ridiculous that they automatically excluded “miscellaneous” and “leisure”. I have no intention of living a champagne lifestyle on NatWest’s money (I won’t have the time!) but most people would agree that about 1/3 of the value of an MBA is the network you build with fellow students and having £0 to socialise with them might have put a bit of a dampener on the networking. Also the point of “miscellaneous” is that you can’t possibly budget for every expense – to omit it is a bit daft. As for saying that they won’t cover your mobile phone – well that is just ludicrous. Perhaps NatWest is stuck in 1996, but these days most people would agree that having a mobile phone is essential for getting a job. Even the Big Issue sellers have mobile phones!

Big issue seller by Flickr user rofanator

NatWest also said they needed the fees confirmed by SBS on SBS headed paper – the same fees that had been stamped and confirmed by the school on the application form. Grrrr!

The result of all that red-lining is that they had taken my living expenses from a comfortable 2/3 of my pre-MBA gross salary, down to …drumroll… £11,000. Having lived in London on a student stipend of around £14,000 when doing my PhD I know that it’s not really feasible to live on less than £1k a month in Oxford. So, having stewed over it for a few days, I sent a rather disgruntled email to my relationship manager on 26th July.

Here’s a tip: my relationship manager was really quite decent, but he won’t contact you unless he has something specific to tell you or request from you. He is primarily acting as the middle man between you and the bank’s underwriters who are making the decisions about your loan. Hence, my ranty email was pretty much ignored. So, on 2nd August I sent another email with a revised budget with my living expenses closer to £14,000.

Tick, tock and I don’t hear anything till a couple of weeks later when I am on holiday in Scotland. I get a phone call: my loan is progressing, but could I please go in to a NatWest branch with my passport and driving licence to prove my ID? So on 16th or 17th August I change my plans for the day and on my way to the airport to fly back to England, I pop in to the Dundee NatWest branch and they take copies of my ID. Well, after all I had only been a NatWest customer for the previous 13 years, so really I could be anyone!

So I keep contacting my relationship manager to check on the progress of my loan application, and for two weeks I am told that it should be approved by the following Friday. Approval does not follow.

Eventually I get told that my loan was close to approval, but then another underwriter took over the application and they want more information about my budget! I still had a miscellaneous line in there, with examples of the sorts of things that might include, but no – they wanted exact expenditure. They also wanted me to justify the amount I was going to spend on shopping for food and how much I might spend on food at the business school. You might not expect this when you first make the application! I was reduced to the level of saying how much I might spend on haircuts, toiletries and medicine and in a moment of facetiousness I included the line “Breathe mints – £3/month” (well – I gotta make that network, although as someone at my work commented “I should maybe budget a little more”!). This budget was sent on 26th August.

Polos by Andrew Mason

On 1st September, I received my credit agreement. There was no way I was going to be able to pay the fees on time so I had pre-warned SBS. In fact, they had also been talking to NatWest too, sending more documents – oh yeah, NatWest had more questions about the fees which SBS had to confirm.

Today, 2nd September I went in to my local NatWest branch to sign the credit agreement. The money should be in my account tomorrow so I can pay the business school and immerse myself in to a fantastic amount of debt! Note I do not have the money at the time of writing this post, so it will be saved as a draft till the money is safely in my account!

So what are the takeaways from this for anyone planning on doing a MBA and applying to NatWest for a loan to fund it? Well, first of all take the “2/3 pre-MBA gross salary” bit with a pinch of salt – it is total BS, verging on mis-leading advertising. The catch is that you will only learn this after having accepted the place at your business school and paying the rather hefty non-refundable deposit. If you have applied on the assumption that you will get this mythical 2/3, you might be a bit screwed when you find out you will not get it. I might complain to NatWest or some ombudsman and suggest that their marketing for the loan is a bit dangerously mis-leading.

Second, it takes ages. My application took about 2 months to get sorted, so if you are a Round 3 admit don’t delay your loan application!

Third, underwriters are toady little sh*ts! My relationship manager was quite decent and did tell me he had been shouting at the underwriters because of their anally retentive ways. I do believe he was getting massively pi$$ed off with them in the end. The loan application hasn’t always been so tortuous. A friend of mine made the same application 18 months before me and did not have to jump through as many hoops as me. This recent attention to detail by the underwriters was confirmed by the relationship manager. I guess they have to justify their job somehow!

Lastly, just to rub salt in to your wounds – my loan interest rate is 7% above base rate – currently 0.5%. I will be praying interest rates stay low. Compare this to London Business School, which has a special loan deal with HSBC with an interest rate of 2.75% above Bank of England base rate. Over the course of the loan that interest difference will mean I pay thousands of pounds more interest than a LBS student! Gutted!

/Update: the money finally made its way in to my bank account on 6th September

Hi Anil. Glad the post was helpful for you. Basically you can assume they will give you the 80% course fees but forget about the 2/3 of your salary (£21,333). They will give you the minimum they can for that part based on the budget you provide and they will not cover anything but the basics. I found it pretty difficult to make my budget look much over £1000 per month. You might be more if your rent/mortgage is much higher. Also note if you are foreign you have to have been living in the UK for something like 3+ years to qualify for the loan.

Hi Steve,
Great post. I’ve been bouncing around the net for a couple hours looking for information on how I could potentially fund a year at Said. Between making my application (Dec/Jan) and being called for interview (Feb 7th), the AMBA Loan appears to have been ended!!http://www.mbaworld.com/index.php?option=com_content&view=article&id=99&Itemid=133
The NatWest website recounts a similar message.
To be honest, I simply can’t afford the fee’s without a loan and agreeing to normal personnel loan interested rates and conditions when you know you will not be working for at least a year is a bit crazy. Any alternatives to NatWest MBA Loan you can recommend or have heard of in Said?

Holy crap, that is major news! I can’t believe they’ve withdrawn that loan. How the hell are UK students going to do MBAs now? The MBA schools will have to get together to do something now otherwise there will be no British students at and UK school.

The only alternative I have heard of is a fellow Brit on my course who, after being refused the Natwest loan, went to Jersey and got a loan at a much lower rate than what I am paying. However, she already knew the bank manager through a professional relationship, so this would not be a route available to any ordinary Joe. Only other option I can think of is work sponsorship, but that is rare these days.

So I would suggest looking at some of the UK offshore banks for options.

P.S. I’ll start asking questions internally here to see what the school is going to do about this situation.

Hi Steven
Hope you are well.
I am joining SBS for my MBA this year and am returning to your blog after knowing for sure that I’ll be a part of Oxford! Whilst on interest rates, it you think you paying 7.5% was painful, imagine what some potential students like me must be feeling. I am an Indian and taking a loan from an Indian Bank (since there arent still any tie-ups with a local UK bank for international students) and will be paying close to, wait for it, 13% rate of interest! Yea, paying through the nose just got redefined! lol But seriously, it could turn out to be a deal breaker for some students who have been offered seats at, say, the other place, and with students there paying much less for their course. Do you think as students getting in in 2011 there is anything we can do to change the situation/influence some people so that this gets fixed for future batches?

Hi Kinny, well to be honest I don’t know what progress has been made with the school here. I need to talk with the maybe the COO here to see if there has been any movement. I believe they were trying some quite big things – like getting a large amount of money to act as security for student loans. You might want to push them on the Insead Prodigy model, which I know they have been looking at: http://www.prodigyfinance.com/web/Prodigy_MBA_Finance.aspx

Yeah I sympathise with your expensive loan. I’m told the US students have a high rate of interest too, but over a longer time period, so it’s more like a tax.

For some reason, I cant reply to your comment below, so posting my response here. Yea, heard about Prodigy and infact I did reach out to Prodigy regarding SBS and they replied with the ‘yea we are working with schools etc and will come back to you shortly’
Infact Peter Tufano spoke to one of my to-be batchmates as part of his research to know more about what prospective students want and this has been voiced to Peter as well. Lets see what the future holds!

Hi Naga. Glad you liked the post. I do indeed have a job now, but I am very far away from paying off the loan. It is a 10 year term and the loan is much bigger than that you just linked. Do they only loan up to GBP25k now? Also my APR is more than in that document – I think it is 7.7% right now. Quite tough!

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